UPDATE 25 October 2016

Since our original post, the US has continued to roll back the sanctions in place with the latest amendment significantly reducing the ban on vessels calling in to the US for 180 days after a call to Cuba.  Essentially, if the cargo being carried to Cuba is on the latest list as an EAR99 cargo, then the vessel will not be subject to the 180 day ban on subsequent calls to the US.

It should be noted however that this amendment is not a complete lifting of the ban. As a helpful advice produced by the International Group’s US attorneys Freehill, Hogan & Mahar makes clear, a vessel may proceed to the US after calling in Cuba only if the cargo it carried to Cuba would, had it been subject to the US Export Administration Regulations, be categorised as “EAR99” and therefore not subject to export restrictions.

To determine whether a cargo would be classified as EAR99, owners should determine if the item is designated by an Export Control Classification Number on the US Commerce Control List (“CCL”), which can be found here. Click the link for the “Commerce Control List Index” on the left side of the page.

If a cargo cannot be found on the CCL then it may not be classified as EAR99 and a vessel may not then subject to the 180 rule. Conversely, if the cargo is on the CCL then whilst there is no prohibition on the vessel carrying and delivering it to Cuba, she will not be able to trade to US waters for 180 days afterwards, as before.

We recommend operators seek specific advice in respect of the above changes prior to calling Cuba and would be pleased to assist.

Original Post

Since the US and Cuba have sought to restart their diplomatic relationship, the sanctions that have been in place for nearly 50 years are anticipated to be softened and finally extinguished completely.

Hull Insurance

Hull insurance is a little easier than cargo in that, only in rare cases, is Cuba specifically exempted from the trading warranties.  Clients often consider the first question that needs to be asked to their hull insurers is ‘I would like to trade to Cuba, please confirm that’s covered’.  The problem with this is, in the event there is no exclusion or other warranty of trade/geographical limits in the policy, the trade should be covered (as long as it’s not in breach of the sanctions in place of course).  But, insurers are known to seek to exclude the trade because of their internal compliance and concerns over being seen to openly cover trade to Cuba, leading to a narrowing of cover (by declining cover) where there is no contractual right to do so.

The Sanctions Limitation Exclusion Clause remains in place and operates in the same way as for cargo insurance.  But, in terms of cover for trading to Cuba being prospectively declined, this is rarely contractually possible, nor is it the correct remedy under the policy.

It is to be noted that, in the vast majority of hull insurance policies, there is no right of cancellation mid-term without a breach of contract taking place.  Trade to Cuba, if it’s not in breach of the sanctions, would not be considered a breach of contract.

Hull War Insurance

Cuba is not within the current JWC Listed Areas and, as such, there is no restriction on trading there and there is no right of insurers to charge an AP for calls there as cover is already in place.  War Insurance also includes a Sanctions Limitation Exclusion Clause which operates the same as in other classes.

The difference between Hull and War Insurance is the 7 days’ notice of cancellation provision in an annual War policy that can be invoked at any time, without fault.  Insurers therefore do have a right to decline cover by way of a cancellation, even if there is no breach of sanctions, but insurers simply don’t wish to be seen insuring Cuban calls.

Again, though, there is no reason to advise insurers of the call unless there is a specific requirement in the policy to do so.

Cuba Sanctions – The Future

The US has started the process of normalizing relations (their words!) with Cuba, although news report suggest it will take some time to fully repeal the sanctions that are currently in place.  It does not appear that insurers have a right to soften their position on Cuban sanctions until either the sanctions are repealed or the State Department takes other action to allow that change.

That said, once this does happen, given the insurance market’s keen desire to seek new opportunities in growing economies, we would expect there to be swift embrace of hitherto sanctioned risks.

If you need any specific advice on your trade or the effect of sanctions on your insurance policy, please don’t hesitate to contact us on [email protected].